Notes for trust officers, private bankers and others concerned with estate and trust planning, from a Merrill Anderson Senior Editor and his retired mentor.

Tuesday, June 04, 2013

“High Income” vs. “Wealth”

High-income folks aren't necessarily High Net Worth – a distinction worth preserving, but probably a lost cause. Credit James Taranto with giving it the old college try:

The relationship between annual income and wealth is analogous to that between caloric intake and body weight: The former obviously contributes to the latter, but they are not the same thing.

To characterize somebody with a high annual income as wealthy is like assuming anybody who gorges himself at a meal must be fat. Wealthy people can have a low annual income, too. Think of dissolute trust-funders squandering their inheritance--in our analogy, the equivalent of obese starvation dieters.

Actually, the trust-funders' low income occurs only after they've shrunk from wealthy to affluent. Nevertheless, Taranto makes worthwhile points about how the burden of the federal income tax is analyzed. The flip side of the mortgage-interest deduction, for instance, is higher tax on renters and taxpayers who own their homes outright.